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• Therefore, it is essential to use stop loss orders to control losses should the reversal fail to hold, and the price continues moving up.
• Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education.
• Additionally, there are some characteristics of a shooting star formation that, if they occur, make the signal of a possible market reversal to the downside stronger.
• Further, it is reasonably reliable in identifying a bearish reversal – especially if it appears near a resistance level.

However, other indicators should be used in conjunction with the Shooting Star candlestick pattern to determine potential sell signals. If the price rises after a shooting star, the price range of the shooting star may still act as resistance. For example, the price may consolidate in the area of the shooting star. If the price ultimately continues to rise, the uptrend is still intact and traders should favor long positions over selling or shorting. There must be little or no shadow below the body of the candlestick. This is why confirmation is required, one can confirm by the next day candle or other technical analysis indicators.

What is a shooting star candlestick pattern?

If the pattern occurs in an uptrend, wait for a trend reversal and a breakout of the lower border of the uptrend. The first blue arrow on the image measures the size of the candlestick. According to our shooting star trading strategy, shooting star candlestick we should seek a target equal to three times the size of the pattern. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.

Trading the https://g-markets.net/ can be very effective but also a bit tricky. After all, you are entering a position against the market trend with the goal of ‘catching’ a trend reversal. The chart above clearly shows that the shooting star pattern emerges as soon as the RSI reading is above 70, asserting overbought conditions.

Shooting Star and Confirmation Candle

Further, it is reasonably reliable in identifying a bearish reversal – especially if it appears near a resistance level. For example, you can have a hammer candlestick pattern at the top of an uptrend which will also signal a reversal. In other words, the wick (tail) doesn’t have to point in the opposite direction of the new trend.

Taking the above chart into account, there are several steps you need to follow in order to effectively identify and trade the shooting star candlestick pattern. In contrast, the inverted hammer is a bullish reversal candlestick pattern that occurs at the bottom of a downtrend. The inserted hammer indicates that the price has bottomed out and is likely to move higher as part of an emerging bullish momentum.

What is the Shooting Star Candlestick Pattern?

If you’re unfamiliar with any of these patterns, check out our Quick Reference Guide. In this post, you’ll learn about the shooting star candlestick pattern’s structure, significance, trading psychology, and trading guide. For this reason, a shooting star candlestick pattern is a very powerful formation.

It may also occur during a period of overall rising prices, even if a few recent candles were bearish. Japanese traders introduce candlestick patterns, and now they are widely used by retail traders to technical analyse the trend of an asset worldwide. In technical analysis, if the price goes up and then closes below 50% of the total candlestick’s range, it is a sign of the strength of sellers. The shooting star candlestick consists of a long upper shadow and a small body near the bottom.

How to trade when you see the shooting star pattern

It simply needs to show that there was selling pressure coming at the highs or lows of the reversal. The colour of the shooting star candlestick does not matter, either red or green. The only thing that matters is the candlestick’s location, prior trend, and structure. When a shooting star candlestick forms at the resistance zone, then open a sell order instantly. Place stop loss level a few pips above the high of shooting star candlestick for high-risk entry with a large risk-reward ratio. However, if you want to go with a conservative trade setup, always place a stop loss above the resistance zone instead of placing a stop loss just above the high.

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• On top, this pattern is quite reliable with the support of other reversal patterns.
• Afterward, a shooting star candle appears at the top after the significant price advance.
• The price action moves higher again in the session, fails to create a new high, and reverses to close at the low of the session.

With a more risky trading strategy, it is possible to open trade even higher, in the zone of formation of a shooting star and a hanging man. A 15-minute chart of GBP/USD in the forex market is shown below, illustrating an instance of the shooting star formation occurring and correctly presaging a turn to the downside. The rounding bottom pattern is a technical setup for the patient trader. This is because the pattern can take quite a bit of time to develop before any significant price moves begin.

How to trade with a shooting star candle?

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IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. Now, the trade is protected against rapid price moves contrary to our trade. Luckily, this candle is relatively big and goes way beyond the minimum target.

After all, nothing is 100% guaranteed in stock trading, and you may experience false signals when trading the shooting star pattern. The Shooting Star candlestick formation is viewed as a bearish reversal candlestick pattern that typically occurs at the top of uptrends. Utilize stop losses when using candlesticks, so when they don’t work out your risk is controlled. Also, consider using candlesticks in conjunction with other forms of analysis. A candlestick pattern may take on more significance if it occurs near a level that has been deemed important by other forms of technical analysis. The candle that forms after the shooting star is what confirms the shooting star candle.